Housing Opportunity Committee
Real Estate Finance Committee
This material is for discussion purposes only and has not been approved
by the Legislative, Housing Opportunity, Real Estate Finance, or Executive
Committees, or the Board of Directors.
Should there be state legislation preempting local vacant property
registration ordinances to ensure consistent application of such ordinances
Options: 1. Do nothing. Historically, C.A.R.
has, for the most part, defaulted to local control for decision-making that
directly impacts real property at the local level.
2. Establish a new policy regarding local regulatory actions on vacant
property maintenance as it applies to foreclosed properties around the
3. Direct staff to prepare an Issues Briefing Paper for the January
meetings that outlines preemption options to be considered for possible
legislation to be sponsored in 2009.
As the number of foreclosed properties has grown, local governments have
become increasingly concerned about the upkeep of abandoned
properties. Many have adopted new ordinances that require
registration, inspection and maintenance of properties along with fines for
violations. Banks that have taken ownership of the properties are
responsible for complying with these requirements. Because they are
absentee owners, they often rely on REALTORS® to act as their intermediary
to address these issues with local government.
A number of cities in California have adopted or amended ordinances to
establish responsibilities for upkeep of properties that have been vacated
as a result of the foreclosure crisis. These ordinances pose issues
for REALTORS® who represent the banks that own these properties.
Banks are absentee owners, and in many cases are not even located in the
same city or state. While they have a financial interest in the
property, because of their geographical distance, they are not aware of the
city’s regulations. They also are not immediately aware of any
problems that may occur with the property, and are unable to immediately
respond should issues arise. REALTORS® who are hired by these
institutions to manage and/or list the properties for sale are expected to
address these issues because of their proximity to, and day-to-day
interaction with, the property and the community.
Local ordinances that are designed to address issues related to vacant
properties typically have one or more of a number of provisions that could
be troublesome for banks and the REALTORS® they hire. These include:
- Vacant property registration
- Notice of Default
- Fines for violation
Many local ordinances impose a registration requirement for vacant
properties that is triggered by the filing of a notice of default. In
these instances a bank owner of a distressed property is required to
inspect and determine if a property is vacant prior to filing the notice.
Such requirements are problematic for several reasons. Banks and/or
their agents (i.e. REALTORS®) should not be put in the position of making
such a determination. Local ordinances may offer a laundry list of
visible indicators of vacancy, such as unopened mail or weeds in the yard,
but these in and of themselves may or may not be indicative of
vacancy. Banks and/or their agents should not be put in the position
of having to make this determination.
More importantly, filing a notice of default does not constitute a transfer
of ownership of the property to the lender. Therefore, the bank
and/or its agent may not have the right to enter onto the property to make
the required inspection. Similarly, they should not be required to
enter onto the property to perform required maintenance. In many
cases, a delinquent borrower may still be residing on the premises and an
unannounced or unwelcome inspection could lead to conflicts.
Furthermore, the default stage of a delinquent mortgage could drag on for
many months, sometimes more than a year.
Registration requirements also impose an administrative burden on the
city. Local government would have to dedicate and/or hire staff to
effectively run such a program. Attempting to pass along any of the
costs to underwrite this administrative burden to property owners through
fees will add more costs to already severely strained housing and lending
Lastly, once a property is foreclosed upon, lenders will typically move
quickly to re-sell it. Therefore, they have an incentive to maintain
the acquired property in good, marketable condition.
B. Recent Change in State Law
SB 1137 (CHAPTER 69, filed with the Secretary of State on JULY 8, 2008;
effective immediately), contained a significant change of current law
regarding maintenance of foreclosed properties. It requires a legal owner
to maintain vacant, residential real property purchased by that owner at a
foreclosure sale or acquired by that owner through foreclosure under a
mortgage or deed of trust. Local government agencies are authorized to
impose civil fines and penalties of up to $1,000 per day per violation on
the legal owner for failure to maintain the property.
This new law requires any governmental entity that chooses to impose fines
and penalties pursuant to this law to:
1. Give notice of the claimed violation, including a description of
the conditions giving rise to the claim of violation to the legal
2. Give the legal owner an opportunity to remedy the violation at
least 14 days prior to imposing fines and penalties, and;
3. Allow the legal owner an opportunity to contest any fines and
SB 1137 defines "failure to maintain," for purposes of this new law, as
failure to adequately care for the property, including, but not limited to,
permitting excessive foliage growth that diminishes the value of
surrounding properties, failing to take action to prevent trespassers or
squatters from remaining on the property, or failing to take action to
prevent mosquito larva from growing in standing water.
This new law also specifically declares that:
1. It does not pre-empt any local ordinance;
2. A governmental entity may not impose fines on a legal owner under
both this section and a local ordinance;
3. This section shall only apply to residential real property;
4. The rights and remedies provided in this section are cumulative
and in addition to any other rights and remedies provided by law.